Valuation and Regulatory Environment - The majority of the company's portfolio investments are classified as Level 3 under ASC Topic 820, indicating that valuations are based on unobservable inputs and significant management judgment [207]. - The company intends to use an independent valuation firm to review the fair value of certain instruments at least once annually, which may lead to fluctuations in valuations over short periods [208]. - The SEC's new Rule 2a-5, effective in Q3 2022, may impact the company's valuation practices and reliance on historical valuation methods [210]. - Changes in laws and regulations, including those from Dodd-Frank, could materially affect the company's operations, cash flows, and financial condition [211]. - The company may alter its investment strategy due to new regulations, which could shift focus away from areas of expertise and adversely affect results [212]. - The U.S. Risk Retention Rules, effective December 24, 2016, may increase financing costs and impact future securitization transactions [213]. - The company is classified as an "emerging growth company" under the JOBS Act, which may affect the attractiveness of its shares to investors [223]. - The company may take advantage of reduced regulatory requirements under the JOBS Act, potentially making its shares less attractive to some investors [224]. - The company will incur significant costs due to compliance with the Sarbanes-Oxley Act and related SEC regulations, which may negatively impact financial performance and distributions [226]. Economic and Market Risks - Economic recessions could impair portfolio companies, leading to declines in revenue and cash flows, which may increase non-performing investments [229]. - Higher inflation levels can reduce returns and the value of investments, as rising interest rates increase borrowing costs and lower dividend payments [231]. - The company may invest in highly leveraged companies, which could result in significant risks and potential loss of investments [238]. - Defaults by portfolio companies could harm operating results, potentially leading to loan terminations and foreclosure on assets [237]. - The company may face challenges in conducting due diligence on portfolio companies, which could expose it to investment risks [232]. - Cybersecurity risks are heightened due to increased reliance on information systems, which could disrupt operations and negatively affect financial data [227]. - The company is currently impacted by COVID-19 measures, which may strain technology resources and introduce operational risks [228]. - Investments in private middle-market companies are risky due to limited public information and unpredictable operating results [241]. - The company may make unsecured debt investments, which will not benefit from any collateral, increasing the risk of loss [243]. - The company may face limitations on rights related to collateral securing junior priority loans due to intercreditor agreements with senior debt holders [244]. - Investments in companies experiencing financial difficulties may be illiquid, making timely realization of investments uncertain [245]. - Price declines and illiquidity in corporate debt markets could lead to significant net unrealized depreciation, adversely affecting the company's NAV [249]. - The company may be unable to liquidate investments quickly, potentially realizing less than previously recorded values [246]. - Rising interest rates may hinder portfolio companies' ability to service debt obligations, increasing the risk of defaults [254]. - The company has not yet identified all potential investments for its portfolio, which may affect anticipated investment pace [255]. - The portfolio may be concentrated in a limited number of companies and industries, increasing the risk of significant loss from defaults [257]. - The company may make unsecured loans to portfolio companies, which do not benefit from collateral, increasing risk in case of defaults [263]. - Follow-on investments in portfolio companies are at the company's discretion, and failure to make such investments could impair portfolio value [258]. - The company is classified as a non-diversified investment company, which may lead to greater NAV fluctuations due to concentration in few issuers [256]. - The company may face contingent liabilities related to the disposition of private securities, which could require indemnification of purchasers if representations about the business turn out to be inaccurate [266]. Financial Performance and Distributions - The company’s ability to pay distributions may be adversely affected by the COVID-19 pandemic, with potential limitations on cash distributions due to asset coverage tests under the 1940 Act [280]. - The company’s total assets to total borrowings ratio must remain above 150% to incur additional debt, which could impact operations if this threshold is not met [275]. - The use of leverage increases investment volatility, magnifying potential gains or losses, and could negatively affect the ability to service debt or make distributions [273]. - The company may issue preferred stock in the future, which could adversely affect the value of common stock due to cumulative dividend requirements and liquidation preferences [288]. - There is no public market for the company’s shares, which may limit liquidity and the ability to liquidate investments [276]. - Stockholders may experience dilution in ownership percentage if additional equity interests are issued at or below NAV [283]. - The company may not realize gains from equity investments, as the value of such investments may decline [271]. - The company’s investments involve higher levels of risk, making them potentially unsuitable for investors with lower risk tolerance [282]. COVID-19 Impact and Market Conditions - The COVID-19 pandemic has caused significant disruptions in local, regional, national, and global markets, affecting middle-market loan borrowers and leading to increased draws on revolving lines of credit [293]. - Increased loan delinquencies, non-accruals, and bankruptcies may occur if public health uncertainties and market disruptions persist, potentially leading to a material adverse effect on the company's financial condition [295]. - Interest rate sensitivity indicates that changes in interest rates can materially affect net investment income, with a hypothetical 200 basis points increase resulting in a net investment income increase of $3.5 million [369]. - The company may hedge against interest rate fluctuations using standard hedging instruments, which could limit participation in benefits from lower interest rates [370]. - The company faces risks related to environmental, social, and governance (ESG) activities, which could adversely impact brand value and operational costs [297]. - Political, social, and economic uncertainties, including those stemming from the COVID-19 pandemic, create significant risks for the company and its investments [291]. - The company may experience fluctuations in quarterly operating results due to various factors, including interest rates and default rates on securities [300]. - Increased governmental involvement in the economy and changes in regulations could adversely affect the company's operations and market conditions [292]. - The company is subject to potential litigation, which could result in substantial costs and divert management's attention [299]. - The company may face challenges in valuing assets and increased volatility in financial markets due to ongoing uncertainties [292].
Kayne Anderson BDC, Inc.(KBDC) - 2021 Q4 - Annual Report